Life Insurance
What Is Life Insurance?
Life insurance is a contract between you and an insurance company.
Essentially, in exchange for your premium payments, the insurance
company will pay a lump sum known as a death benefit to your
beneficiaries after your death.
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Your beneficiaries can use the money for whatever
purpose they choose. Often this includes paying
everyday bills, paying a mortgage or putting a child
through college. Having the safety net of life insurance
can ensure that your family can stay in their home
and pay for the things that you planned for.
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There are two primary types of life insurance:
term and permanent life. Permanent life
insurance such as whole life insurance or
universal life insurance can provide lifetime coverage, while term life insurance provides protection for a certain period.
How to Find the Best Life Insurance Policy For You
With the wide variety of life insurance policies available, pinpointing the right one can be a challenge for any buyer. Here are the important aspects to consider.
Look at financial strength ratings.
A strong financial strength rating is more than just peace of mind that the company won’t go out of business decades from now. Insurers with greater financial strength can be less likely to need to increase internal policy costs and premiums in response to challenging financial times.
Ratings are available from agencies such as Standard & Poor’s and AM Best, and are usually found on insurers’ websites.
Don’t assume insurers offer competitive pricing for everyone.
Life insurance companies want your business, but they all operate from their own playbooks. Premiums can vary wildly and, for cash value policies, cash value growth can be very different among companies and policies.
Be aware that a life insurance quote for a cash value policy may not reflect what you’ll actually end up paying over the years to keep the policy in force.
“Current regulations in some states and for some products permit insurers to ‘quote’ a low premium while charging high costs—without disclosing that you may need to pay additional premiums later in order to avoid a lapse.
Term Life Insurance
Term life insurance is a policy where you choose the length of coverage, such as 10, 15, 20 or 30 years. If you die within that term, your beneficiary will receive the death benefit. If you outlive the term and don’t renew the policy (at a higher cost), there is no death benefit.
Term life insurance is good for folks who want to cover a specific financial concern, such as income replacement during your working years.
Whole life insurance
Whole life insurance is predictable because the premiums, rate of cash value growth and amount of the death benefit are fixed and guaranteed.
Universal life insurance
This type offers more flexibility and you may be able to adjust premium payments and death benefits within certain parameters. The cash value growth will depend on the insurer and the performance of the invested assets that are underlying the policy. Types of universal life insurance are fixed-rate universal, guaranteed universal, indexed universal or variable universal.
Permanent life insurance policies can be difficult to understand from quotes or hypothetical illustrations. Simply comparing life insurance quotes or some projection of cash values won’t reveal whether the policy is a good value.
“Ultimately, the premium you’ll have to pay and/or the cash value growth you’ll see depends on what the insurer actually charges and how well the investments do. You want to confirm that internal policy costs are competitive and that the investments within the policy fit your risk tolerance.
What Does Life Insurance Cover?
Life insurance covers death from illness, accidents and simply old age. This includes deaths from diseases, falls, car accidents and Covid. Deaths from accidental drug overdoses are covered.
A narrow type of life insurance called accidental death and dismemberment covers only deaths that are accidental, such as an accidental fall or car crash. It does not cover deaths by illness, disease or old age.
Do I Need Life Insurance?
If someone depends on you financially—either now or after your death—you may need life insurance. For example:
Many people buy life insurance so it can act as income replacement for their families if they die unexpectedly.
Some people provide financial support after their death by funding a trust with life insurance. For example, if you have a child with special needs, a trust can be used to provide for them.
Other common reasons people buy life insurance are:
To provide funds for their own funeral.
To provide money for their families to pay off a mortgage or other debts.
To ensure that children have money for college tuition in case a parent passes away.
To create supplemental income during retirement years with a cash value policy.
To provide money to pay estate taxes to beneficiaries who are inheriting very large taxable estates.
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Let us help you decide what options are best for you.
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Call an agent today at 727.643.6800
